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Covington Secures $1 Billion Appellate Victory for Oil Companies

8/25/2008

WASHINGTON, DC, August 25, 2008 — The U.S. Court of Appeals for the Federal Circuit today upheld the 2006 ruling of the Court of Federal Claims that awarded over $1 billion to 11 oil and gas companies that sued the Government for its breach of nearly three dozen oil and gas leases off the coast of California. The award by the Court of Federal Claims was likely the largest in that court’s 150 year history.

In issuing its decision today, the Federal Circuit wrote that the Government had breached the leases when it, in effect, changed their terms after the leases had been issued.

The leases were sold in the early 1980s by the U.S. Department of Interior as part of an effort to identify new sources of energy. Through their exploration, the companies had discovered new oil fields in federal lands offshore California, estimated by the federal government to contain over one billion barrels of oil. Under the terms of their contracts, the companies were given the right to “explore, develop and produce” oil and gas in the leased areas. However, production drilling never commenced because subsequent changes in federal law materially interfered with the companies’ efforts to develop the reserves.

Covington & Burling LLP represented the 11 companies. Partner Steven Rosenbaum, who delivered the oral argument before the Federal Circuit, says today’s affirmation by the Court of Appeals reinforces the right of Americans to hold the Government accountable for its obligations. “When any person, company or organization enters into a contractual agreement in this country, they must fulfill the terms or pay damages, even if that entity is the U.S. Government."

Assisting Rosenbaum on the appeal were Covington’s E. Edward Bruce, senior counsel, and associate Tom Cosgrove. All are based in the firm’s Washington office.

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